Thursday, October 11, 2007

Passing the Buck to Square the Circle

. Thursday, October 11, 2007

So, as the dollar weakens and the euro strengthens, an interesting dilemma arises. The Americans remain strangely quiet, happy about the dollar's depreciation but not trumpeting the fact. The Europeans are divided about what to do. The French want the European Central Bank to take steps to weaken the euro; other European officials celebrate the strong euro.

"France has complained loudly in recent weeks about the strength of the euro, with clear support from Italy, but Germany, the world's top exporter, kept its distance. German Finance Minister Peer Steinbrueck did so again as the ministers convened on Monday, telling journalists as he entered the Luxembourg meeting: "I prefer a strong euro." His Dutch and Austrian colleagues took a similar line."

Unable to agree upon a policy for the euro, it seems they decided to pressure China. "At a meeting dominated by worries about the strength of the euro, Jean-Claude Juncker, who is chairman of the group of euro zone finance ministers, described the concerns of the officials as being "first point, China; second point, dollar; third point, yen."

Thus, unable to agree on coordinated management of the dollar-euro rate, look for the US and the EU to agree to gang up on China at the forthcoming G-7 conference.


Sensemania said...

and all exchange students are performing celebratory dance moves...

Sensemania said...

a question related to this post,

LeMonde today had a long op-ed on the European reponse to the high Euro and in it the author claimed that "La politique de change américaine est du seul ressort de la Maison Blanche, la Fed n'ayant pas son mot à dire sur le sujet." (Exchange rate policy is a White House resort only, the Fed does not say a thing about this).

This confuses me. I thought interest rates were the main leverage of nations to impact exchange rates and those are clearly left to the Fed. So how can the White House be responsible for the exchange rate if they cannot regulate it in anyway?

Passing the Buck to Square the Circle
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